The markets are flying confidently higher these days. But when it comes to United Airlines (NASDAQ:UAL) and investors willing to ante up on UAL stock, you ought to know exactly where the emergency exit is before potential turbulence hits. Let me explain.
The coronavirus has been tamed. Well, at least in the eyes and minds of investors and those critical price charts used for forecasting better days ahead.
But before you think Wall Street is getting ahead of itself with regards to the demise of COVID-19, it’s important to separate market action from more painful headlines to come. And that includes UAL stock.
The fact is Monday’s muscular steamrolling of bears in all the major averages added critical price confirmation to last week’s “iffy” follow-through day. As much and in today’s healthier market environment, buying stocks makes more sense. And for contrarian-oriented investors at least, those decisions might even entertain the riskiest of risk-assets out there, including United Airlines shares.
To be certain, UAL stock and other airliners remain dicier purchases. When not completely grounded, commercial carriers are nevertheless flying ‘over’ thin ice. The fact is air traffic has sunk to multi-decade lows. And there are other headline worries as well.
Aid of $32 billion to names like United, Delta Air Lines (NYSE:DAL), American Airlines (NASDAQ:AAL) and others from the U.S. government has still not been agreed upon. And even legendary value investor Warren Buffett who’s famous for buying when others are selling in panic, has reduced stakes in the sector vis-à-vis Berkshire Hathaway (NYSE:BRK.B).
Still, when there’s obvious blood on the tarmac and uncertainty so thick you could cut it with a knife, appreciably it’s a better time to buy. Also, with the Oracle of Omaha still holding massive stakes in the sector and as a world class bridge and top-notch poker player adept at not showing his real intentions during the game, the decision to buy UAL stock may have the necessary elements of a winning hand.
UAL Stock Weekly Stock Chart
On the price chart, UAL stock has obviously led the market lower. The provided illustrated weekly view shows United Airlines has tumbled down into a test of its lifetime 76% Fibonacci retracement level with most all that hurt since the second half of January. That’s well past the pain experienced by investors in the broader market or other large-cap stocks such as Microsoft (NASDAQ:MSFT) or Walmart (NYSE:WMT) and for that matter, the bulk of companies hit by the COVID-19 sell-off.
But it’s time to look optimistically forward. Technically and as United Airlines shares continue to consolidate around this deep support level, an oversold price chart is showing some stabilizing signs of life. From the two-plus weeks of ‘mostly’ inside candlestick price action to stochastics signaling a bullish crossover, there’s growing evidence for investors to consider a contrarian-style wager.
Even so and if you’re agreeable, there’s no reason to gamble on a naked long stock position. The good news is UAL stock investors don’t need too.
Bottom-line, there’s a highly-liquid options market in United Airlines where spread strategies such as collars or verticals can be designed with ironclad and reduced risk. And at the end of the day or if set your horizons out a few months or more, that amounts to having a certain emergency exit at your disposal if needed.
